fter more than a year of threatening to pull out of the nuclear agreement reached in 2015 by Iran and five world powers plus Germany, President Donald Trump announced in
May 2018 that the United States was indeed leaving the Joint
Comprehensive Plan of Action (JCPOA) and reimposed unilateral and
secondary sanctions on Iran. The first wave on August 6, 2018, targeted
automobiles, foreign currency, and gold.1 The second wave, which went
into effect on November 5, 2018, is more punitive and is aimed at Iran’s
oil exports and banks.

The South Asia Center’s
Future of Iran Initiative aims to
promote US-Iran engagement
and seeks to promote a deeper
understanding of Iran to inform
US policymakers as they
formulate new approaches to the
Islamic Republic. This project
provides a political safe space
and a rigorously analytical point
of departure in which both the
most skeptical critics and the
most optimistic assessors of
Iran’s intentions and ambitions
can work together to build a
bipartisan consensus on policy
toward Iran, Iranians and the
wider Middle East.

Even before they were reimposed, the sanctions had a harsh impact
on the Iranian economy and in particular, the Iranian currency, the rial,
which has plummeted compared to the US dollar. Western companies,
including major European firms, have fled Iran to avoid jeopardizing
their much more significant ties to the US financial system and the US
market. But at the same time, European governments and Iran’s major
trading partners in Asia have underlined their continuing support for the
JCPOA and sought to devise mechanisms for continuing to trade with
Iran. With the help of its P4+1 partners—Britain, China, France, Germany,
and Russia—Iran apparently intends to ride out this sanctions wave in
hopes that Trump will be a one-term president and that his successor
will return to the nuclear deal.
This issue brief will examine the ways in which Iran will cope with sanctions by recalling how it survived a more punitive multilateral wave led
by the Obama administration at a time when Iran was more geopolitically isolated.

Banking and Currencies
Countless Iranian sanctions stories have made international headlines.
Among the most dramatic is that of Iranian-Turkish businessman Reza

Zarrab, who moved billions of dollars from Turkey to
Iran through banks, businesses, and front companies.
In November 2017, he signed a plea deal with US authorities that helped them convict the former deputy
general manager of Turkey’s state-controlled Halkbank
of sanctions violations. 2
In April 2018, it was revealed that Bahrain’s Future Bank
assisted Tehran in hiding $7 billion in transfers from
2004 to 2015, by forging documents to conceal trade
between Iran and foreign partners. One of the ways
this was done was through “wire-stripping,” which
removes or changes the identifying information of a
bank transfer. For example, one message from Iran’s
Bank Melli—one of the Bahraini bank’s Iranian shareholders—instructed bankers at Future to not mention
the Iranian bank name or code reference number, and

to avoid routing the transaction through New York.
Wire-stripping is a common circumvention scheme. 3
Similarly, Pilatus Bank, a Maltese private bank, evaded
sanctions from 2006 to 2014. Pilatus laundered more
than $115 million from a Western bank to Iranian companies via a Venezuelan housing project. The bank’s
owner, Ali Sadr—an Iranian national—used a Saint Kitts
and Nevis passport with a United Arab Emirates (UAE)
address.4 To get around the 2012 sanctions, which affected Iran’s Central Bank as well as a number of other
Iranian financial institutions, Iran also opened private banks in Iraq—often technically owned by Iraqi,
Lebanese, or Syrian citizens. 5
Sadr’s story is an example of how wealthy Iranians
with ties to the Iranian government have used passport-for-investment schemes. Small countries—includ-

ing Saint Kitts and Nevis, the Comoros Islands, and
Antigua—are commonly used to evade sanctions.6
Iranian nationals essentially bought passports in these
countries to register companies abroad and open bank
accounts. Though the Iranian government doesn’t
recognize dual nationality or formally allow second
passports, the Iranian government quietly permitted
high-profile businessmen to acquire them.7
The Comoros Islands, a small country off the coast
of Africa, has more than 1,000 passport holders with
Iran listed as their birthplace. Many of the passports
were obtained from 2008 to 2017, with the majority
purchased at the height of multilateral sanctions. The
Comoros government eventually cancelled the passports of more than 100 Iranian nationals and broke diplomatic ties with Iran. In 2016, it sought closer ties to
wealthy Arab countries such as Saudi Arabia. 8
Currency is another major roadblock for Iran trade.
Speaking to a small group of journalists and Iran analysts in New York on September 29, Iranian Foreign
Minister Mohammad Javad Zarif said Iran and its trading partners would use their own currencies in bilateral trade and settle any imbalances at the end of a
specified period in a non-dollar currency. “More and
more people are interested in avoiding the dollar in
their transactions,” Zarif said. “Sell stuff in your own
currency, buy stuff in the other country’s currency,
and at the end of a specific period, balance it out in a
non-dollar currency. It’s quite possible and may even
be profitable.” 9
Russia, which is also under US sanctions because of
Ukraine and the use of chemical agents in assassina-

tion plots, among other reasons, has often spoken with
Iran about moving away from the US dollar. There have
been preparations for a “regional integrated payment
network” including former Soviet states in Central Asia
in which Turkey might also participate.10
China, the biggest purchaser of Iranian oil and Iran’s
largest trading partner, has recently set up an oil-purchasing platform denominated in yuan.11 While Iran
is not among the top reasons that Beijing is trying
to launch this contract, the bourse may prove useful.12 Similarly, European Commission President JeanClaude Juncker has said that the European Union plans
to increase the use of the euro in international trade,
especially for oil and gas purchases.
For months, Europe has been looking for an alternative electronic money transfer system that cannot be
blocked by the US Treasury Department. Since commercial banks can no longer transfer funds to Iran’s
Central Bank and many other designated financial
institutions, Europe is becoming more reliant on its
central banks—with the assumption that the Trump administration would never sanction a European central
bank. According to NBC News, “Under that scheme,
a central bank would collect hundreds or even thousands of planned transactions and ‘bundle’ them together, sending the funds to Iran in one lump sum that
would then be redistributed to the intended recipients
in Iran.” 13
As part of this circumvention mechanism, Europe is
seeking a payment mechanism not dependent on the
US dollar. Europeans have been discussing for months
creation of a “special purpose vehicle” (SPV) to help

Chatterjee, Sumeet and Meng Meng, “Exclusive: China taking first steps to pay for oil in yuan this year – sources,” Reuters, March 29, 2018,
https://www.reuters.com/article/us-china-oil-yuan-exclusive/exclusive-china-taking-first-steps-to-pay-for-oil-in-yuan-this-year-sourcesidUSKBN1H51FA.

European countries legally conduct transactions with
Iran.14 On the sidelines of the United Nations General
Assembly, European Union (EU) high representative for
foreign affairs and security policy Federica Mogherini
announced plans for an SPV after talks with the P4+1.
The group issued a statement saying that through this
mechanism, they could “protect the freedom of their
economic operators to pursue legitimate business with
Iran.” The system would “facilitate payments related
to Iran’s exports [including oil] and imports, which will
assist and reassure economic operators pursuing legitimate business with Iran,” the statement said.15 While
major corporations will be unlikely to use this mechanism, the SPV could facilitate humanitarian and other
lawful trade with Iran via small and medium-sized
enterprises.
Interestingly, Iran recently authorized mining of Bitcoin
and other cryptocurrencies. As this issue brief was
being written, the Central Bank of Iran was drafting a
policy framework for cryptocurrencies to be used for
foreign trade.16 There was even talk of Iran launching
its own national cryptocurrency (although countries
such as Venezuela have had disappointing results.)
According to Iranian officials, it would be similar to
Bitcoin but would only be available for use by Iranian
banks and companies.17
Iranian nationals also rely on hawala, or havaleh in
Persian, a traditional form of banking in which a sarafi
or currency exchange transfers chunks of cash to
banks. Typically the money is transferred to banks in
countries such as Turkey and the UAE. The funds are
then wire-transferred to a designated bank account in
the West, including the United States. In this way, the
Iranian origin is untraceable.18 In October, Reuters re-

ported that Turkey had arrested 417 suspects in a money-laundering scheme that transferred $419 million in
foreign currency to 28,088 bank accounts, mostly belonging to Iranians living in the United States.19

“While major corporations
will be unlikely to use this
mechanism, the SPV could
facilitate humanitarian and
other lawful trade with Iran
via small and mediumsized enterprises.”
Iran Offers Incentives to Maintain Oil
Exports
The 2012 multilateral sanctions regime managed to
suppress Iranian oil exports by more than one million
barrels a day. 20 From June to September 2018, Iranian
oil exports fell by about 600,000 bpd, or more than
25 percent. 21 The pace of the reduction is higher than
initially anticipated, and the total is expected to drop
further.
The Trump administration asserts that it would like Iran’s
oil exports to be reduced to zero. Indeed, European
companies did completely stop importing Iranian oil
from 2012 to 2015 when international pressure on
Iran to negotiate curbs on its nuclear program was at
its height and the EU formally banned such imports.
However, this goal is unenforceable in the current sit-

Source: bourseandbazaar.com Iran’s Oil Exports May Be More Resilient Than Headlines Suggest

uation. 22 Major Iranian oil purchasers are reducing imports, but not to zero, and waiting to see what sort of
waivers the Trump administration will grant. 23
Tehran has offered a variety of incentives to importers. It is discounting prices for crude and offering in
some cases “practically free shipping.”24 Iran has also
resorted to providing its own insurance for oil cargos
as major international insurers are now barred from
Iran by sanctions. Tehran is also using its own tankers
to replace those of the big multinational shipping companies. In July, Iran reportedly insured its India exports
on tankers operated by the National Iranian Tanker
Company (NITC). 25

For New Delhi, giving in to US demands is complicated.
Its close proximity to Iran helps reduce transport costs,
and India’s refineries are configured to specifically
process Iranian oil, making it harder to switch to other
suppliers. According to CNBC, “Other senior [Indian]
officials have said outright that the country will not
fully cut their Iranian imports and that doing so would
be impossible.”26
Some countries have decided not to give in to US pressure. Chinese oil companies—state oil trader Zhuhai
Zhenrong Corp and Sinopec Group, Asia’s biggest refiner—are moving their cargoes onto NITC tankers. 27
In July, all seventeen tankers carrying Iranian crude

is unclear what the cause was, Bloomberg speculated
it had to do with negotiating better terms—something
the Chinese also did in 2012. 29
Some Iranian oil importers have offered to pay Iran
through barter. Even the EU is considering an oil-forgoods scheme, according to Iranian officials. 30 During
the prior period, payment for Iranian oil was frozen in
foreign bank accounts or used as credit for purchases
of local goods and services. This was particularly the
case in regard to China. 31
Russia is considering an oil-for-goods scheme. 32 Russia
has also contemplated buying Iranian oil and renaming
it as Russian before reselling to third countries. 33 These
sorts of oil swaps are common in the oil industry even
in a non-sanctions environment. There is also the suggestion that Iran could send oil to foreign ports, blend
it there with non-Iranian crude and resell it. 34 At the
height of multilateral sanctions, Tehran would forge
documents that made Iranian oil look like it came from
Iraq. Iranians would also do business with European
companies in Turkey and list the UAE as the final
destination for shipping before the documents were
changed and goods shipped to Iran’s Bandar Abbas
port. 35
Large tankers loading at Kharg oil terminal, which
handles significant quantity of Iran’s crude exports.
Photo Credit: Wikimedia Commons, National Iranian Oil
Company/NIOC

to China belonged to the NITC. 28 Interestingly, Iran recently underwent a gap of not delivering oil to China
for eighteen days, the longest in three years. Though it

During the last round of sanctions, Iran was forced to
store unsold crude on offshore tankers to keep production high since it is costly to resume oil pumping
once wells are shut down. 36 According to Bloomberg,
Iran has resorted to this tactic again, storing crude on
NITC supertankers off Kharg Island. Thus far, Tehran

isn’t storing the same amount of crude it did under
previous sanctions, which was millions of barrels. 37 As
of September 2018, there were two Iranian tankers reported floating off the coast of the UAE. 38
At the height of the 2012 sanctions, Iranian oil tankers would turn off their tracking devices, repaint their
ships and even rename them. With the help of satellite imagery, it has become evident that Iran is using this strategy again, with at least several tankers a
month spotted without their tracking devices turned
on. During the last round of sanctions, Iranian tankers would turn off trackers and transfer oil onto foreign tankers in the middle of the sea. 39 The Financial
Times reported that at least seven Iranian tankers have
stopped sending position signals since September 16,
2018. These ships are known as “ghost tankers.”40
Babak Zanjani, an Iranian oil tycoon working closely
with the Islamic Revolutionary Guards Corps (IRGC),
managed to evade sanctions during the prior wave
through a “scheme to disguise the origins of Iranian oil
and sell it on the open market, transferring millions of
barrels from tanker to tanker.” Zanjani was arrested in
2013 and charged with embezzlement for “withholding
$1.9 billion in oil revenues” and is now facing the death
penalty.41

Neighbors and “Black Knights”
Iran relied heavily on neighboring Afghanistan and
Iraq to circumvent prior sanctions. Afghan banks, in
particular, were used to pay for Iranian imports. In
2012, the president of the Money Exchange Union in
Afghanistan said that the rial “comes across in trucks,”

where it is then converted into US dollars. Afghan middlemen were making anywhere from five to seven percent commission.42
In September 2018, a money exchanger in Kabul told
Bloomberg that he takes a taxi with suitcases full of
cash to Iran via a remote border crossing. He reportedly
transfers about $220,000 in two to three trips. Since
the traders have contacts and multiple entry visas,
they are not questioned or stopped by Afghan border
police. According to Khan Jan Alokozay, the deputy
chairman of the Afghanistan Chamber of Commerce
and Industries, “traders sell dollars on the black markets for rials in Iran and they smuggle the rials back to
Afghanistan to sell them at its official rates in [border]
provinces” since the rial is an accepted currency.43
As a result of this money exchange, Afghanistan is
struggling with problems of its own. The US dollars
smuggled into Iran are now causing a dollar shortage
in Afghanistan. Traders in Afghan border provinces—
traditionally known for their commerce with Iran—are
also transferring dollars, which in turn has caused the
value of the Afghani to depreciate. Reuters reports
that as much as $2 to $3 million cross every day.44 This
is just an example of the many loopholes Iran uses to
import gold and hard currency.
Iranians also purchase dollars in Iraq. About 2.6 million Iranians traveled to Iraq in 2017 as religious pilgrims, visiting sites sacred to Shia Muslims in Karbala
and Najaf. The Iraqi government is trying to make it
more difficult for Iranians to buy dollars through Iraqi
exchange houses. At the same time, Iraq has sought
waivers to allow it to continue to purchase Iranian oil

that fuels power plants responsible for generating 40
percent of Iraq’s electricity.45

are now being allowed to enter customs at semi-official borders with Iraq.48

Most goods that were smuggled to Iran during the last
round of sanctions went through the UAE and Oman,
but when the Treasury Department cracked down,
Tehran turned to Iraq. Incompetence and corruption
on the part of the Iraqi government allow Iran to bypass many rules and regulations. Beyond supplying
oil for electricity, Iran also has leverage because of its
links to Iraqi Shia parties and militias.46

Eastern European countries that don’t share strong
trade ties with Iran have also been conduits for sanctioned trade in the past. Countries such as Belarus,
Hungary, and Romania looked at sanctions as a “lucrative opportunity” during the previous round of penalties and earned the nickname “black knights.”49 It is
unclear what role they might play during this sanctions
period.

“Iran has heavily relied
on front companies to
do business in countries
including China, Iraq,
Liechtenstein, and the
UAE.”
One often-overlooked tactic is the role of couriers or
porters. Iraqi Kurds, for example, bring money and
food to relatives in the Kurdish region of Iran. This can
turn into a profitable business.47 Porters, or kolbar,
have been around for generations and have smuggled
everything from cigarettes and electronics to alcoholic
beverages. According to Iranian government data,
some 68,000 kolbar special licenses were issued by
the Interior Ministry for Iranian Kurds so they can avoid
being stopped by border police. Since June 2018, they

Front Companies and Rationing
Iran has heavily relied on front companies to do business in countries including China, Iraq, Liechtenstein,
and the UAE. According to reporter and Atlantic
Council non-resident senior fellow Borzou Daragahi,
this entailed “hiring outsiders as silent partners or registering under obscure names that didn’t immediately
raise flags.”50 Iran has also used private companies in
the UAE and Iraq owned by Arab citizens from Iraq,
Lebanon, and Syria. These individuals purchase goods
and legally ship them from the UAE and Iraq, and finally smuggle them through land or water routes to
Iran. 51
According to the deputy chairman of Iran’s Chamber of
Commerce, Industries, Mines, and Agriculture, Pedram
Soltani, Iranian businessmen have been opening new
companies under Chinese partners’ names and trusting
their assets to them in order to circumvent sanctions. 52
In 2013, it was reported by the Wall Street Journal that
the IRGC had opened 150 front companies in Georgia
under Georgian partners’ names. 53

One method to safeguard vital imports such as medicine has been used by Iran’s Foreign Investments
Company (FIC), which recently spent $3 million to purchase a bankrupt pharmaceutical factory in France.
The FIC has dozens of cash accounts and investments
amounting to $5 billion in twenty-two countries. It is
prioritizing assets to insure access to key goods, services, and technology. FIC specifically bought the
French factory to make sure that Tehran can obtain
medicine for infectious diseases. Such imports were
problematic in the past despite an exemption for humanitarian needs. 54 FIC has investments “in an Afghan
trading house, a Brazilian auto-parts plant, a German
pipeline company and even an Omani lease finance
firm” which is shared with Saudi Arabia. FIC also invested in a UAE company to buy power-generation
equipment. 55
To mitigate the impact of sanctions on ordinary
Iranians, the Iranian parliament is considering legislation to increase imports of essential goods and sell
them at subsidized prices. Meat, rice, sugar, and bread
could be distributed via rationing coupons popularized
during the Iran-Iraq War. 56 These measures would help
the most vulnerable Iranians, the rural poor. In July,
Iran’s Planning and Budget Organization discussed an
“executive package” that would help mitigate the impact of sanctions.
As Western companies exit Iran, China is likely to be
the biggest beneficiary. When France’s Total quit the
South Pars gas project in August, China’s National
Petroleum Corporation was considered as a replacement, even though its stake would increase to 80 percent. Similarly, now that India is considering pulling out
of the Chabahar port project in which it had pledged
a $500 million investment to build two berths, China

could step in. 57 Meanwhile, fisherman in the Persian
Gulf are complaining about the presence of Chinese
boats at their fishing grounds. 58
Most Iranians regard Chinese products as substandard compared to Western goods, but remember how
quickly they took over the market a decade ago. 59
When Chinese and Indian pharmaceuticals and drug
ingredients flooded Iran during the last round of sanctions, many Iranians complained that the drugs either
didn’t work or caused serious side effects.60

Conclusion
Through its four decades of existence, the Islamic
Republic of Iran has shown its ability to survive economic strangulation. It is dusting off its old sanctions-circumvention playbook, but its people are
bound to experience considerable pain that will only
compound grievances about a host of social, political,
and economic ills.
Because of the Trump administration’s continuous
threats to leave the JCPOA and re-implement sanctions, Iran has had at least a year to plan its response.
Although Iran’s “detection systems and knowledge are
leaps and bounds ahead” of where they were, according to Farhad Alavi, a sanctions-compliance attorney in
Washington, it doesn’t mean that the government has
come up with significant or better alternatives since
the 2012 round.61
Once again, the Iranian government will blame the
United States for the sanctions—an argument that takes
on new strength because it was the United States, not
Iran, that first violated the nuclear deal. But the Iranian
people were already disappointed, before Trump took

office, that they saw so little benefit from the JCPOA
in part because of endemic domestic corruption and
mismanagement. A key question now is whether the
vaunted patience of the Iranian people will fade before
the sanctions do.

Holly Dagres is a nonresident fellow with the Middle East
Security Initiative at the Atlantic Council’s Scowcroft
Center for Strategy and Security. She is also the editor of
Scowcroft Center’s IranSource blog and curator for the
weekly newsletter, The Iranist. In 2013, she conducted onthe-ground research in Iran on the impact of sanctions for
her master’s degree thesis from the American University
in Cairo.
Barbara Slavin directs the Future of Iran Initiative at the
Atlantic Council. She is the author of “Bitter Friends,
Bosom Enemies: Iran, the US and the Twisted Path to
Confrontation” and has visited Iran nine times.
The authors are grateful to Masoud Mostajabi for his contributions to this paper.